iBiquity: How a closed-source model is killing HD Radio

Chart created by Bridge Ratings (2006). Click for a larger version.

Last week on the PUBRADIO mailing list, the topic of HD Radio came up again. Commenters went one way, then another — all talking about programming and broadcasting as they usually do. Technology didn’t really enter into the equation, yet it’s one of the core issues in terms of consumer adoption patterns.

Why is HD Radio failing to catch on? Lots of reasons easily come to mind:

• Broadcast audio streams aren’t something new — it’s called Radio and we’ve had it for 100 years; why bother to get a new radio when the old one works fine?
• The higher quality audio possible with HD Radio is nice, but in most listening situations (cheap radios, cars in traffic, noisy offices) the improvement over analog FM is negligible
• Multichannel service really hasn’t arrived at most HD-capable stations so far
• While HD Radio signals are less prone to some types of interference, real-world experience suggests it’s a generally weaker signal, especially if you’re comparing devices with internal antennas (clock radios)
• Though most consumers don’t know it, there are software revisions appearing with HD Radio right now, and most radios are not field-upgradable — it’s not “safe” to invest big bucks in receivers yet
• Satellite radio has blunted the multichannel argument and still offers less commercialism than an HD Radio multichannel service would (admittedly, you have to pay for sat radio, but many are willing to do so)
• Internet audio streams have a bigger audience already and are growing faster than all other streamed audio services

So yes, HD Radio has many problems, but the biggest barrier to consumer adoption is probably the cost of licensing the technology itself. iBiquity, the owner of the HD Radio intellectual property, decided long ago their path to riches would be paved with licensing fees for each HD Radio sold, and they’ve priced mildly curious consumers out of the market.

The chips involved in handling HD Radio signals are just silicon and their cost as a manufactured object will fall to near zero as volumes go up, like any popular chips. Consider what’s happened with WiFi chips over the years — they’re everywhere and they’re cheap. But HD Radio is still prohibitively expensive.

The HD Radio chip itself probably costs perhaps $5 each in materials and labor. But the licensing fee charged by iBiquity is estimated to be closer to $50 per radio. That means every radio must start its pricing at no less than $50 just to break even — not including manufacturing the rest of the parts, engineering cost, shipping, retail markup and so on. The licensing should cost $5 tops, if iBiquity wanted to spur adoption, or at least get out of the way of interested consumers.

Meanwhile, FM radio receivers are basically free and they offer 80%+ of the HD Radio value proposition. I’ve even received FM receivers as free conference schwag — people literally give away FM receivers as free logo gear. Who’s going to pass out HD Radio receivers for free when each one is well over $50? Further, who’s going to drop $50+ per radio for the home, the office and the car?

iBiquity is a classic massconomy player that will meet with an ugly demise in the years to come if they don’t change their approach. They’ve tried to control every angle of HD Radio and tried to make a buck at every turn. Their goals were not to bring communities together around shared content or interests. The goal was simple: invent a revision to radio, own the technology, promote the technology to transmitter makers and buyers, create an illusion of market needs, prime fears of satellite radio and then soak everyone — right down to the last consumer — for every possible dollar along the way. It was and is a cynical and crass play for cash. (It wasn’t even designed to free up wireless spectrum!)

HD Radio, or some variation of digital radio, might have made it, had there been an open source approach to its technology development and licensing. The most important and impactful developments in the past 15 years have come from either open source projects or the promotion of shared — and open — industry standards (like HTML, just to name one). The HD standard is a closed source secret.

If HD Radio receivers were “too cheap to meter,” as FM receivers are today, usage rates would definitely improve. As it stands, HD Radio will lag behind FM and Internet terribly, probably forever. FM has history and ubiquity and “free” on its side. The Internet has momentum on its side and it offers a compelling multi-platform, multimedia, two-way communication value proposition.

Any digital radio proposal that mimics the FM experience will have an uphill battle with consumers that are largely satisfied with the radio model (if not the stations themselves). Why add closed-source weight to your pack when you’re already going uphill?